The Warburgs

by Ron Chernow

  At first, Dr. Goldman ministered to Siegmund’s body, treating him for diabetes and tension-related headaches and giving him placebo injections of vitamin B12. Siegmund, brightening after these visits, christened Dr. Goldman the “Zaubermeister,” or “Miracle Man.” After a time, the visits expanded into wide-ranging historical discussions about Bismarck’s error in creating the German Reich or Hitler’s clever exploitation of public-works projects to build mass support. A man with an air of oracular wisdom, Dr. Goldman also had a worldly side and liked to discuss financial ventures with Siegmund.

  In time, Dr. Goldman tended to Siegmund’s sorrows as well as bodily aches. To discuss emotional problems directly was very hard for Siegmund, which meant that his anger sprayed out in a thousand indirect and inappropriate ways. There was a frightening spot of vulnerability inside him that produced great pain. When despondent about his wife, family, or colleagues, he began to spill out his problems to Dr. Goldman in what sounded suspiciously like Freud’s “talking cure.” “Siegmund was a deeply unhappy and lonely man,” said Dr. Goldman. “He was often plagued by suspicion and contempt of other human beings. He was a hard critic of his colleagues and didn’t get on with anybody. He had a fear of office intrigues and came to me to unload his worries. He was completely egocentric and fundamentally conceited. He thought most other people were fools.”33

  Extremely sentimental, Siegmund would often shower friends with gifts and fulsome, flowery letters of affection. Dr. Goldman was touched by Siegmund’s tokens of esteem: the hundred blue plums he later sent from Switzerland, finely wrapped in tissue paper, or the complete Encyclopaedia Britannica that arrived one day. After they once discussed the psychology of debtors and creditors, Siegmund got so carried away with enthusiasm that he invited Goldman to join the S. G. Warburg board. The doctor declined, knowing he would lose his independence. At the same time, Siegmund never showed much interest in Dr. Goldman’s personal feelings. “He deeply affected me because he was so brilliant and so lonely,” said the doctor.

  Siegmund’s other intimate friendship was with the S. G. Warburg graphologist, Mrs. Theodora Dreifuss. Handwriting analysis was far more popular in Germany and Austria than in England and was a long-standing Warburgian pastime. Max had converted Moritz to graphology after sending a client’s handwriting to an expert and getting back a detailed, accurate report.34 An amateur graphologist, Fritz often analyzed handwritings in the M. M. Warburg mail. Even Henry Grunfeld was a believer, having ferreted out an embezzler in his prewar German firm through graphology.

  In the 1950s, Siegmund started to use graphology to screen job applicants at S. G. Warburg & Co., hoping to weed out people who were depressed or devious and spot those who were especially creative and reliable. Graphology revealed things ordinarily concealed from view. But in postwar London, it seemed an arcane procedure that added to the image of S. G. Warburg as a very strange, alien firm. After applicants wrote a few lines in a fountain pen, their handwriting, age, and sex were passed along to a graphologist. This diagnostic tool was taken seriously at Warburg. In one case a person rejected at his first interview was called back and hired on the strength of his graphology test.

  Once concerned about the emotional state of an associate, Siegmund sent a specimen of his handwriting to Theodora Dreifuss, a Swiss graphologist and psychologist who was a distant relative on the Warburg side. Her analysis stunned Siegmund: She seemed to know more about the man from his handwriting than Siegmund did after years of daily conversation. Siegmund began to use her regularly, and after a time no important person was hired at S. G. Warburg & Co. without her approval. The analyses Theodora mailed to London were often astounding in their scope and precision. To further her work, Siegmund in 1963 endowed from his own pocket the European Foundation of Graphological Science and Application, creating a chair in graphology at the University of Zurich.

  Educated in psychology, Theodora Dreifuss was an imposing woman, proud, stimulating, funny, perceptive, and sometimes gruff. She was one of the few people who could tease Siegmund or disagree with him and get away with it. She tried to wean him away from a constant need to convert people to his point of view. In her strength, self-confidence, and fierce intelligence, she was his counterpart and once boasted of her analyses, “I’ve never been wrong.” There was an almost universal impression at S. G. Warburg that Siegmund and Theodora were lovers. In letters, he struck the warmest tone with her and often spent spare weekends with her in Zurich. Siegmund’s fascination with graphology extended beyond office use, and he sent Theodora letters from politicians he knew. He liked to have a secret knowledge of people’s weaknesses, a sense of what made them tick, a competitive edge in understanding them. And he liked to keep Theodora busy.

  Whether or not they were lovers, Theodora occupied a place in Siegmund’s life analogous to that of Dr. Goldman, and he took personal problems to her. Often, Dr. Goldman would go to Zurich, too, so that they formed a little trio. In later years, Siegmund even had daydreams about the three of them starting a consulting firm together with his chief secretary, Doris Wasserman. It was a characteristic Siegmund pipe dream. Even as he became a grand personage, he yearned to withdraw into a life of simple pleasures. He looked back wistfully to the tough, early days when his London business was still small. He had no sooner succeeded than he began to dream of starting again and escaping from the extraordinary machine he had created.

  ——

  Siegmund Warburg making a quite definite point in negotiations.

  (Courtesy of Peter Spira)

  CHAPTER 44

  ––

  Enemy of the City

  Siegmund Warburg’s virtues and vices were closely allied. The qualities that made him a trying person—his perfectionism, hair-trigger temper, and high expectations—made him a matchless banker. To his adoring but fearful troops at 9–13, King William Street, he conveyed constant dissatisfaction, making people strive to perform better. They stretched themselves for Siegmund, believing they worked directly for him and taking pride in it. Like some omnipresent deity, he would telephone even lowly subordinates to offer profuse praise or scathing criticism. He read outgoing mail and pounced on errors. Subordinates felt this all-seeing man knew their innermost weaknesses. Because they feared his reproach and revered his intelligence, they struggled to please him, giving him a powerful grip on them. The constant monitoring of everybody’s work allowed Siegmund to identify talented newcomers.

  This boss had a long list of pet grievances. He didn’t like diminutives, abbreviations, or people who chatted with clients in the corridor. He was tough on smokers long before such militancy was fashionable. Like schoolboys sneaking behind the headmaster’s back, even senior executives puffed away on the sly. When uncle Ernest Thalmann—a bright, rather delicate man who respected but feared Siegmund—heard him shuffling down the hall, he would slide open a desk drawer, squash his cigarette in a hidden ashtray, then close it. One day, Siegmund shuffled into Thalmann’s office and saw wisps of smoke issuing from a slit. “My dear Ernest,” he said with wry amusement, “I think your desk is on fire.”

  A marvelous actor, Siegmund would stage fake tantrums then slyly wink at his associates, saying, “Well, I think that had the right effect, don’t you?”1 Sometimes he whispered in German to Grunfeld, “Should I get angry?”2 He adroitly used his temper to keep people nervous, off balance, uncomfortable, working at maximum capacity. Pleased when one secretary said a boss had to be a bit disliked to be respected, he exhorted soft-spoken executives to shout more. It was not unusual for Siegmund to materialize in a laggard department and start to rave like the wrath of god, “We’re not a second-rate firm. We’re not a third-rate firm. We’re a tenth-rate firm!” Then he would storm out, leaving his startled subordinates sitting there, agape, wondering what had just happened.

  Sometimes the histrionics were in earnest. Siegmund liked to scream, bang his fists, and slam doors. Occasionally, if a colleague’s telephone line was busy, he hurled the pho
ne violently at the wall then buzzed for a porter to retrieve it. He might do this several times in an hour. One day, after a flaming row, Siegmund burst from his office and flung his cup across the hallway, nearly hitting the poor lady pushing the tea trolley. Afterward, he apologized to the shaken woman.3 Telephone-throwing became de rigueur at Warburgs. One recruit remembers approaching the building his first day and seeing a lonely telephone swinging high on a cord from an upper-story window.

  Sometimes Siegmund’s outbursts were calculated and spontaneous at the same time. His Alsterufer relative, Eddy Lachman, records this story of having lunch with Siegmund and Eva in Paris:

  “When the lunch was over Siegmund went to the garderobe where he had checked his umbrella. Eva and I stood some distance away. The check-in girl handed him a wrong umbrella and with French aggressiveness kept insisting that it was his. Siegmund started to roar like a wounded lion. Eva and I—knowing what was bound to happen—retreated into the most obscure corner of the lobby trying to look as if we had nothing to do with the offended man at the garderobe. Siegmund kept on shouting and protesting. Within seconds he was encircled by all the gold-uniformed porters, flunkies, and assistant managers in striped pants that the hotel could muster, as they were obviously afraid that some terrible accident might happen. The public formed a wide ring of curious onlookers around the scene that lasted quite a few minutes. In the end—after the head manager had penetrated into the wildly gesticulating mob and had found Siegmund’s own umbrella—he came to us in our corner, quietly happy, totally satisfied, smiling broadly as if nothing had happened. The storm was over.”4

  At S. G. Warburg & Co., the working day lasted well into the evening, winning it the nickname of “the night club.”5 It was known as a two-coat firm—one coat you wore, the other you left on your seat if you slipped out. Siegmund worked harder than anybody. At eight-fifteen in the morning he was already in the back of his chauffeured car, dictating to his secretary. When he rode home with Henry Grunfeld in the evening, they reviewed the day’s events. One evening, wandering through the office at six-thirty, Siegmund was dismayed to find empty desks. The next morning he fired off a memo, expressing regret that people left so early.6 Shrewd at office psychology, he would stop by certain departments at seven every evening, training people to linger. When London suffered a blackout in the early 1970s, the S. G. Warburg staff beavered on by candlelight.

  People found Siegmund’s persistent demands terrifying, joyous, outrageous, uplifting. Many wives resented that he had stolen their husbands. When one wife fretted that her husband always explored deals that never reached fruition, Siegmund smiled. “Well, when I start a hundred deals, I can get two. But that doesn’t mean I can do fifty to get one.”7 He went to extraordinary lengths to cultivate clients. Once, trying to impress Courtauld, the textile concern, he told a blue-uniformed messenger to hop on a motorcycle and—without paying attention to traffic lights—deliver a package personally to the chairman. “He used to say, ‘We must do things with style,’ ” said his colleague, Arthur Winspear. “We must achieve the results. And the profit-and-loss account will follow.”8

  Although Siegmund denied it, S. G. Warburg hosted two separate lunches every day: one at 12:30 (ending promptly at 1:25) and a second at 1:30. At the less important 12:30 lunch, Siegmund would stop by to chat before presiding over the 1:30 affair. Although served in style, the fare was never rich or fancy. Siegmund agonized over place settings for lunch. Instead of talking about cricket, the firm brought in staff experts to make constructive suggestions so that no client left empty-handed. Siegmund taught his staff not just to advise but to listen to clients, to study and heed their needs. At other firms, if the person in charge of an account went on holiday, the account shut down. At Warburgs, somebody always returned the client’s call. Siegmund demanded that incoming letters be answered the same day. With a punctilious regard for the amenities, he never failed to send birthday or condolence cards to clients.

  In the early 1960s, the firm moved to a nondescript office building at 30, Gresham Street, posting no nameplate outside. Siegmund worried about overly rapid growth. “Oh God,” he thought, “it’s a bigger office, it’s a more sumptuous office, a more pretentious office. I’m very afraid of provoking the gods.”9 Despite its antique clocks and fine prints, the office displayed what Siegmund termed “dignified austerity.” After Nazi Germany, Siegmund and Grunfeld never shed their fears of sudden catastrophe and kept the style lean and sober. When one director wished to buy a Rolls-Royce, Siegmund talked him out of it as unbecoming. Even as the firm grew rich, it remained extremely frugal, using standard-issue furniture and serving midday coffee from plastic cups. Visitors, in contrast, drank from china cups and were received in rooms outfitted with beautiful furniture.

  The firm’s frugality could be comical. When a young director named Peter Spira sent a telegram from New York ending, “Best regards, Peter,” Grunfeld was riled by this extraneous verbiage and suggested he end the telegram “Spira.” (Siegmund ended his “Siegmund.”) Another time, Spira ordered cold lobster from Harrod’s for a directors’ meeting. The next morning, Grunfeld summoned him. “You were outrageously extravagant for the dinner last night. You had five courses.” “Five courses?” asked Spira. “Yes, you had a starter, lobster, cheese, fruit, and coffee—five courses,” said Grunfeld.10 For fifty years, Siegmund and Grunfeld carried passport photos showing them at age thirty because it seemed a waste of time and money to update them.

  This sense of economy extended to words. Siegmund banned “in order to” as an extravagant substitute for “to.” He loathed the expression “in point of fact” and immediately suspected of dishonesty anybody who began a sentence, “Frankly.” He inveighed against “a diarrhea of words and constipation of ideas” and rivaled Hemingway in his passion for brevity. The secret of letter writing, Siegmund said, was to picture the desired answer then write a letter to produce it. Siegmund’s own letters were models of understated elegance.

  Even though there was no official chain of command and people could freely approach any executive, the uncles had a very German sense of hierarchy. They gave the impression of people at war. Indeed they were at war, still fighting the Nazis and seeing to it that Hitler didn’t ruin their lives. The organizational structure was awesome. Each incoming letter was opened, summarized, then circulated to all directors before the nine-fifteen morning meeting. This Jesuitical firm even had strict rules about ending letters. For those in high standing, letters were signed, “Yours ever.” More than one associate of Siegmund’s grew pale with fear upon losing the coveted “Yours ever,” reflecting a demotion in standing.11

  These rules earned Siegmund the sobriquet of the “Headmaster” even as they produced work of exceptional polish. The Bank of England said the best-written memos came from S. G. Warburg. Siegmund stressed the importance of Warburg memos becoming the basis of deal discussions, enabling the firm to define the agenda. He also thought that ideas committed to paper acquired precision and could furnish evidence for later use. In 1972, when Rothschilds tried to exclude S. G. Warburg from a Eurobond issue for an American client, Siegmund dispatched a young associate, Richard Lutyens, to the archives to unearth the memorandum of a verbal agreement he had made with Rothschilds fifteen years before. It was there, just as Siegmund predicted.12

  Having lived through many upheavals, these German and Austrian refugees had an exaggerated need for order. The same systems that ensured top performance served as instruments of control. S. G. Warburg’s success rested on a paradox: The firm was headed by a mostly benevolent tyrant who preached a teamwork ethic. Siegmund shunned the star system in favor of esprit de corps. The firm spent inordinate time keeping people informed. As Sir David Scholey later said, “We never use the first person singular, such as talking about my client or my proposition.”13 At least two Warburg people were present at all client meetings. Despite this intense group culture, Siegmund saw the firm as his own personality writ large and would ne
ver yield his prerogatives on major issues of personnel, strategy, and client relations.

  After Weimar Germany, Siegmund didn’t want to be blindsided by unpleasant surprises and liked to map out contingencies in advance. The two most taboo expressions at his firm were “Let’s cross that bridge when we come to it,” and “There’s no point crying over spilt milk.” Before takeover contests, Siegmund set up offensive and defensive teams to simulate all permutations of battle. People had to know their fall-back positions if their strategy misfired. He insisted upon postmortems to avoid future repetition of errors. Siegmund quoted Lucie as saying that if you were disappointed, you either became bitter and poorer or profited from it and became richer.14 Or that a mistake was only a mistake if one didn’t learn from it.15 Or there was no bad weather, only inappropriate clothing. Banking for Siegmund involved perpetual self-criticism. At one point, he assigned a person to record all mistakes made and the remedies applied.

  By 1957, Siegmund had crafted the splendid fighting machine that would soon dominate London finance, but he still had second-rate clients. He now ran a miniconglomerate. Besides Brandeis, Goldschmidt, he controlled the rubber merchants Hecht, Levis and Kahn, an ad agency, a firm of insurance brokers, and a property-development company. Most of these ventures prospered, although S. G. Warburg skirted reputational ruin with a copper refiner called Elkington. The Warburg-appointed manager engaged in sober hedging operations on the metals exchange, but when the price went the wrong way, he kept increasing his stake and ended up speculating wildly to cover his losses. It took Henry Grunfeld several hours to extract a confession from the man. A rescue operation was then mounted so that neither shareholders nor the S. G. Warburg image suffered.

  To complete restoration of the Warburg name, Siegmund wanted to enter the front ranks of London merchant banks. To do so, he had to penetrate the august Accepting Houses Committee, whose seventeen member firms stood at the summit of London finance. With special backing from the Bank of England, their trade bills were discounted at the finest interest rates. Twice a year, the group met at the Bank of England, and the meetings were chaired by the governor himself. Many venerable member firms—Baring, Rothschild, and Schroder—traced their ancestry back to the early nineteenth century. The Committee was the very quintessence of haute banque.